Last week, the nonprofit journalism enterprise ProPublica wrote a breathless expose about a number of wealthy Illinois families, and their law firm collaborator, who were able to secure generous financial aid awards for their children to attend certain Illinois public universities.
The article served as a brilliant kind of Rorschach test for how readers feel about public services, means-testing, and the administrative state. If you haven’t read it yet, go check it out first, then head back here.
What happened in Illinois
Unfortunately, the ProPublica authors didn’t consult me or anyone else who understands how financial aid works, so the article is missing some important details.
How financial aid works in the United States is that there is a single, federal application called the Free Application for Federal Student Aid, or FAFSA, which is used by the federal government to determine statutory eligibility for certain federal programs, including Pell Grants, subsidized and unsubsidized federal student loans, and some smaller programs like SEOG. The FAFSA produces an aid eligibility determination based on family size, income, assets, and a few other variables.
One of those variables is “dependent status.” In general, all undergraduates are considered dependent unless they meet any one of several tests:
- Will you be 24 or older by Dec. 31 of the school year for which you are applying for financial aid?
- Are you married or separated but not divorced?
- Do you have children who receive more than half of their support from you?
- Do you have dependents (other than children or a spouse) who live with you and receive more than half of their support from you?
- At any time since you turned age 13, were both of your parents deceased, were you in foster care, or were you a ward or dependent of the court?
- Are you an emancipated minor or are you in a legal guardianship as determined by a court?
- Are you an unaccompanied youth who is homeless or self-supporting and at risk of being homeless?
- Are you currently serving on active duty in the U.S. armed forces for purposes other than training?
- Are you a veteran of the U.S. armed forces?
If an undergraduate applicant meets any one of those tests, they’re considered “independent,” and only their own income and assets are used to determine federal financial aid eligibility. This means, for most independent undergraduates, that they’re entitled to the maximum amount of federal student aid.
Above, I’ve bolded the test used by the Illinois families in the ProPublica story to trigger maximum financial aid eligibility: by asking a court to grant legal guardianship of their progeny to a friend or relative, they were able to remove their own income and assets from the federal financial aid determination of their children at Illinois public universities.
Why it worked
So far so good, right? Not quite. there are two important additional reasons why these Illinois families were able to maximize their financial aid awards.
First, Illinois has a low/nonexistent requirement for guardianship orders. While the federal FAFSA condition for independence is obviously meant to identify students who are escaping abusive or inadequate living situations, guardianship orders are handled by state courts, and as ProPublica explains:
The Illinois Probate Act, the law that governs guardianship, does not specify circumstances in which guardianship should be denied. According to Illinois law, a court can appoint a guardian if the parents consent, the minor agrees and the court determines it is in the minor’s best interest. Even if a parent is able to care for the child, the court can approve the guardianship if the parents voluntarily relinquish custody of the child.
The federal government doesn’t have a mechanism to overrule state guardianship orders because family law is exclusively a state competency.
The second advantage these Illinois families had is that the universities their children applied to rely entirely on the FAFSA for student aid eligibility decisions. As I’ve explained in the past, many public and virtually all elite private universities rely on a second screening tool, the College Board’s CSS Profile. This application requires parental information regardless of FAFSA dependency determinations.
While federal financial aid determinations are based entirely on the FAFSA, in order to receive generous in-state and institutional aid, the Illinois families needed to send their kids to a school that doesn’t use that additional information.
The Utopia of Rules
The anthropologist David Graeber’s 2015 book “The Utopia of Rules: On Technology, Stupidity, and the Secret Joys of Bureaucracy” describes a key reason why, despite its frustrations and absurdities, we’re attracted to bureaucracy: it gives us some confidence that, no matter how annoying we might find our interactions with the system, that the system is not targeting us or singling us out for persecution. In that way, the impersonality of the bureaucracy puts everyone on a level playing field, with rules defined in advance. You can’t plead with your sister who works at the DMV to give you a drivers license because no one can plead with your sister.
Rules are rules — and the Illinois families followed the rules.
The problem is means-testing and more rules won’t help
Whenever these “scandals” come along there are immediately calls to “tighten up,” “strengthen,” and “fortify” the rules governing means-tested programs. But even if that’s what you think you want, it’s not true. What you want is to live in a just society, and the idea of people “exploiting loopholes” in the rules pisses you off because you think it makes society less just.
The problem is, means-testing also makes society less just. It discourages people from applying for the food, health, and housing benefits they need. It discourages people from going to college. It discourages people from starting businesses. There’s nothing just about a society full of hungry, sick, homeless, unemployed people.
To condemn the Illinois families for taking advantage of the rules, as written, is to say the rules were wrong. But that only gets you halfway home. Were the rules too loose, and need to be tightened, so that every Illinois family needs to jump through even more hoops if they want to send their kids to college? Or were the rules too tight, too carefully constructed, too delicately balanced, and what we really need is public education free to all without the increasingly tortuous barrier of means-testing?
The reason I love the Illinois case as a test is that it demands we answer two, equally important questions:
- what should the rules be?
- and how should we feel about people we don’t like following the rules?
Most wealthy people have no problem accepting deferred compensation in their 401(k) accounts, or making “backdoor” Roth IRA contributions, or squirreling away tens or hundreds of thousands of dollars into HSA accounts. Those are the rules, and they’re maximizing the benefits of them, as they’re written.
Now how do they feel about a single parent of 3 who reports exactly $14,250 in earned income and claims a refundable credit of $6,431? Are those parents still “just following the rules” or are they “exploiting a loophole?”
If you want to make the rules stricter on low-income parents, but looser on high-income investors, you’re making an important point, but the point you’re making is about you and your values, not about the rules.